The U.S. Federal Reserve has been letting the world know for a while that it will soon embark in an interest rate tightening cycle, after years of leaving policy rates near zero to stimulate growth after a devastating financial crisis and recession.
But despite the careful buildup, there is a possibility that the Fed tightening cycle could at some point rattle financial markets, with potentially difficult consequences for the most vulnerable emerging and frontier markets, a Policy Research Note from the World Bank’s Development Prospects Group concludes.
After years of bad news from developing countries about high rates of health worker absenteeism, and low rates of delivery of key health interventions, along came what seemed like a magic bullet: financial incentives. Rather than paying providers whether or not they show up to work, and whether or not they deliver key interventions, doesn’t it make sense to pay them—at least in part—according to what they do? And if, after doing their cost-benefit calculations, women decide not to have their baby delivered in a health facility, not to get antenatal care, and not take their child to be immunized, then doesn’t it make sense to try to change the benefit-cost ratio by paying them to do so?
If you were given a small reward every time you worked out, would you be more inclined to stick to a permanent exercise regimen? How much would that incentive have to be? Would regular exercise be beneficial for your health and ultimately to the greater society?
Monetary incentives are being increasingly introduced by policymakers into all kinds of interventions across a wide range of sectors including health, education, and the environment. The rationale for this trend is that we often make choices without accounting for how these choices may affect other people (and sometimes even ourselves). Obesity is one such example. It imposes high healthcare costs on society. Economists argue that well-designed monetary incentives can drive people to alter their choices so that everyone can benefit.
In health, the bulk of existing literature concludes that financial incentive schemes promoting healthy behavior are quite effective in the short run. Think about all the times we’ve rushed to our favorite exercise class lest we be fined for a no-show or were rewarded for showing up for ten classes in a row. Now what happens when those incentives eventually disappear altogether?
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John Grunsfeld, former NASA Chief Scientist and veteran of five Space Shuttle flights, had several chances to look down at Earth, and noticed how poverty can be recognized from far away. Unlike richer countries, typically lined in green, poorer countries with less access to water are a shocking brown color. During the night, wealthier countries light up the sky whereas nations with less widespread electricity look dim.
Dr. Grunsfeld’s observation might have important implications. Pictures from satellites could become a tool to help identifying where poverty is, by zooming in to the tiniest villages and allowing a constant monitoring that cannot be achieved with traditional surveys.
Low-income countries facing a hangover as the commodity cycle turns
Until recently, confidence and expectations for low income countries (LICs) were soaring – with good reason. After all, for most of the 2000s, many LICs managed to consistently post growth rates that were much higher than in the previous three decades (Figure 1).
For metal and mineral exporting LICs – these account for almost two-thirds of LICs – robust global demand for copper, iron ore, oil and high commodity prices filled government coffers and lifted investment and exports. This resulted in a broad based improvement in growth (Figure 2). The 2000s also marked a decade of discoveries, with major oil and gas discoveries in East and West Africa that transformed long term prospects for some LICs.